Otto Thoresen on his review into generic financial advice

Sarah Coles questions Otto Thoresen on his bid to bring financial education to the masses

There are two things that everyone knows about their finances. Firstly, they are far too complicated to understand, and, secondly, anyone who offers you help to get to grips with them is not to be trusted.

It’s an understandable state of affairs, especially given the amount of jargon and the many mis-selling scandals generated by the multi-billion pound financial services industry. But it is a situation which has left millions of Britons financially vulnerable. The government has recognised that in a world where individuals are clocking up mounting credit card debts and hefty mortgages, and ignoring the need to save for their retirement something needs to be done to improve their financial capability. Back in 2007, it appointed Otto Thoresen, the chief executive of Aegon UK, to review the need for a national system of generic financial advice that brings free information about money and finance to those who need it most, with the aim of overcoming prejudices about financial advisers, the fear of financial jargon, and perhaps the biggest barrier of all: inertia.

Lack of financial capability is an issue that has widespread repercussions and impacts on the workplace. Individuals with money worries could end up suffering from stress that reduces their productivity in the workplace. They may also have to spend time during working hours dealing with their financial problems. Furthermore, if individuals lack financial know-how, then there is little chance of them fully understanding and appreciating the financial benefits they are being offered by their employers, such as pensions or shares.

Last month, The Thoresen review of generic financial advice: final report was published, laying down a framework for a new approach to financial information that also identifies a key role for employers. It proposes the introduction of a service, provisionally branded ‘Money Guidance’, that will provide information on budgeting, saving and borrowing, insurance, retirement planning, tax and welfare benefits, and help individuals navigate the terminology of the financial services industry. Thoresen says: “People are put off. The language [of finance] is too complex, and there’s no obvious logic to it.”

The service will also offer guidance via the web, telephone and face-to-face consultations, which will help individuals identify the issues facing them and their available options.

Thoresen says the service needs to be preventative and accessible at key points in people’s lives, such as when they have a child or if their partner becomes ill, to avoid a monetary crisis arising further down the line.

One vital life stage, he says, is when someone begins their first job and starts to make decisions about their finances. Here employers could act as a conduit for financial education and support by referring staff to the Money Guidance service. He explains: “Every employer as part of [their] induction process could give people something that allows them access to the Money Guidance service and encourages people to use it.”

This could be anything from a section on the company intranet, to literature in a welcome pack, or bringing in an adviser.

As part of his review, Thoresen ran two prototype projects, which included workplace-based trials. He explains: “We went to large employers like B&Q and Woolworths and asked the store managers if they would allow an adviser to come in and do a briefing during their lunch hour. Most people were happy to allow it to be delivered to staff and people responded very well to it.”

He added that repeating these every six months would be a useful way of keeping financial issues front-of-mind.

Partly as a result of this trial, Thoresen concludes in his report that the employer could be a useful agent to “push the service to individuals”. The report also says that bodies such as the Financial Services Authority (FSA) with its Making the Most of your Money workplace programme had made a useful contribution to promoting financial capability in the workplace. Since the launch of this programme, the FSA, using educational literature, a CD-Rom and employee seminars, has reached 1.3 million employees. Of those surveyed, 86% have said that these seminars have played a role in decisions to take action in relation to their finances.

However, Thoresen also makes it clear in his report that in order to reach as many people as possible the Money Guidance service would have to work with other bodies to deliver face-to-face support in a variety of settings.

He says that any central body established to run the Money Guidance service will “work with organisations like the Citizens Advice Bureau, National Debtline and the National Association of Pension Funds, to deliver [information] to various audiences in a way that suits them”.

It is not clear, however, whether product providers will form part of this advice network.

Within the workplace, providers are recognised as an established source of basic financial information, building guidance into their worksite marketing. However, there remains a question mark over whether employees or the wider population will consider advice from this channel to be fully independent. Thoresen’s report states that “the government should further test whether impartial guidance can be provided through or with commercial outlets”.

People’s perception of advice from providers will be put to the test, if Thoresen’s proposal for a 12-18 month trial or ‘pathfinder’ project is implemented prior to the national roll-out of the Money Guidance service. This trial will test out channels of advice, and approaches to marketing.

This trial alone will cost £12 million and the service when rolled out nationally is expected to cost £50 million a year. The financial services industry will be expected to equally match government spending. Thoresen points out that this is small beer compared to corporate marketing budgets.

However, the scheme is not expected to breed generations of financially-informed experts, or people who are entirely at home with pensions and investments. Thoresen says: “I’m not suggesting young people will be absolutely committed to pensions, but we might be able to give them some basics on incomes and outgoings.”

Neither will the scheme offer individuals specific in-depth advice about what products will be relevant for them. This is because the scheme is designed to be impartial and not linked to the sale of any financial products, so that more people feel able to trust it.

Thoresen says: “We are taking people to a point where they have a choice between a couple of options and they know what will happen if they do nothing. Above that, we don’t say ‘you should have a plan with Norwich Union or Legal & General or whatever’. We help people understand the alternatives open to them and some of the pros and cons. They still have to take responsibility for the decision.”

However, getting people to realise that they need to take on a degree of responsibility for their own financial wellbeing is a huge task. Thoresen appreciates that the process requires a change of mindset over the long term so that people will accept it is up to them to manage their money with the same degree of importance as, say, their health.

Financial Independence

The workplace has a role in this long-term transformation, by encouraging people to think about their finances through educational initiatives and campaigns. However, Thoresen believes employers can go much further and suggests that those with flexible benefits schemes similar to that offered in his own workplace at Aegon, could use the annual review to point employees in the direction of Money Guidance. He says: “The employer has a role in encouraging people to think about their finances, but it’s up to the employer.”

Those that choose to promote financial understanding in the workplace, will, he says, achieve some kind of payback. For example, employees will come to understand the value of their benefits more clearly, and make decisions that enable them to be on a firmer financial footing, therefore reducing any money worries.

While some employers already recognise the benefits of helping staff with their finances by providing financial education seminars and one-to-one guidance, Thoresen’s research shows that 19 million people could benefit from Money Guidance, as their level of knowledge is so low. Some eight-in-ten of those using the prototype services went on to take at least one action within a week or so of using the service. Of these, over half took specific action such as buying a new product or speaking to a financial adviser. So whether employers choose to simply refer staff to the Money Guidance service once it is established, or go further, Thoresen sees the workplace as having a pivotal role to play in the delivery of financial education in the future.

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Career history

Although his father was Norwegian, Otto Thoresen is Scottish, and was born and raised in Buckie, Banffshire. After graduating from Aberdeen University with a first class honours in mathematics and statistics, and working for a number of years in the financial services industry, he was appointed chief executive of Aegon UK in 2005.

He is a member of the Financial Services Advisory Board, which oversees the implementation of Scotland’s Financial Services Strategy. He is also a member of the Association of British Insurers’ Board and chairs its Audit Committee.†

2005 Appointed chief executive of Aegon UK.†

2000 Appointed finance director of Aegon UK.†

1994 Launched Scottish Equitable International. 1992 Appointed managing director of Royal Insurance’s offshore life business, Royal Life International.†

1990 Joined Royal Insurance, as general manager, strategic marketing.†

1988 Joined Abbey Life as executive director, marketing.†

1984 Appointed marketing manager at Scottish Equitable.†

1982 Qualified as a fellow of the Faculty of Actuaries.†

1978 Joined Scottish Equitable working in the actuarial, marketing, IT and investment divisions, while training as an actuary.†

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Impact of proposed Money Guidance service on employers

The final report of the Thoresen review of generic financial advice recommends that the government sets up a national Money Guidance service offering basic generic financial advice.

Employers will be able to direct staff to the Money Guidance service as and when they need to make financial decisions about their perks. They can do this through their literature, by making verbal recommendations or providing a link to the service on the intranet site. A good time to direct staff to the service is when they are going through an induction process or are selecting options through their flexible benefits scheme.

Employers will also be able to host regular seminars covering basic information, such as monthly budgeting or understanding savings accounts, using advisers provided by the service.

Some employers may decide to go further than simply directing employees to the Money Guidance service, which will just offer basic financial guidance.